CHEMICALS AT THE CROSSROADS: - Grace Matthews, Inc.

CHEMICALS AT THE CROSSROADS:
U.S. CHEMICAL INDUSTRY 2007 - 2010
SPRING 2010
Grace Matthews, Inc. 219 N. Milwaukee Street Milwaukee, Wisconsin 53202 414.278.1120 gracematthews.com

CHEMICALS AT THE CROSSROADS SPRING 2010
GRACE MATTHEWS CHEMICAL
PRACTICE
Grace Matthews’ chemical group provides merger,
acquisition, and corporate finance advisory services
across the spectrum of specialty chemicals.
GRACEMATTHEWS.COM
JOHN BEAGLE MANAGING DIRECTOR
JBEAGLE@GRACEMATTHEWS.COM
BENJAMIN SCHARFF DIRECTOR
BSCHARFF@GRACEMATTHEWS.COM
THOMAS C. OSBORNE SENIOR EXECUTIVE, COATINGS
TOSBORNE@GRACEMATTHEWS.COM
ANDREW HINZ VICE PRESIDENT
AHINZ@GRACEMATTHEWS.COM
KEVIN YTTRE VICE PRESIDENT
KYTTRE@GRACEMATTHEWS.COM
TRENT MYERS VICE PRESIDENT
TMYERS@GRACEMATTHEWS.COM
ANDREA WOLF ASSOCIATE
AWOLF@GRACEMATTHEWS.COM
Grace Matthews, Inc.
3M
A. SCHULMAN INC.
ACETO CORPORATION
AIR PRODUCTS & CHEMICALS, INC.
AKZO NOBEL, N.V.
ALBEMARLE CORPORATION
ALTANA AG
ARCH CHEMICALS, INC.
ARKEMA, INC.
ASHLAND, INC.
AVERY DENNISON CORPORATION
BASF CORPORATION
BECKER INDUSTRIAL COATINGS
BENJAMIN MOORE & CO.
BORREGAARD
BRUSH ENGINEERED MATERIALS
CERADYNE, INC.
CHEMTURA CORPORATION
CHR. HANSEN A/S
CLARIANT CORPORATION
CYTEC INDUSTRIES, INC.
THE DOW CHEMICAL COMPANY
DUPONT
EASTMAN CHEMICAL COMPANY
ECOLAB, INC.
FERRO CORPORATION
FLINT GROUP
H.B. FULLER CO.
HENKEL
HEXION SPECIALTY CHEMICALS, INC.
HONEYWELL INTERNATIONAL INC.
HUNTSMAN CORPORATION
ILLINOIS TOOL WORKS, INC.
INEOS GROUP LTD.
INTERNATIONAL FLAVORS & FRAGRANCES, INC.
LANDEC CORPORATION
THE LUBRIZOL CORPORATION
LYONDELLBASELL INDUSTRIES
MILLIKEN CHEMICAL
OLIN CORPORATION
OM GROUP, INC.
POLYONE
PPG INDUSTRIES INC.
PRAXAIR, INC.
QUAKER CHEMICAL CORPORATION
QUEST SPECIALTY CHEMICALS
ROCKWOOD HOLDINGS, INC.
RPM INTERNATIONAL
ROYAL DSM N.V.
SENSIENT TECHNOLOGIES CORP.
THE SHERWIN-WILLIAMS COMPANY
SIGMA-ALDRICH CORPORATION
SPARTECH CORPORATION
THE VALSPAR CORPORATION
W.R. GRACE & CO.
ZEP, INC.

CHEMICALS AT THE CROSSROADS SPRING 2010
CONTENTS
KEY TAKEAWAYS 2
CHEMICALS AT THE CROSSROADS
CAP AND TRADE
AN INDUSTRY TRANSFORMED
U.S. CHEMICAL INDUSTRY: A GRAPHICAL OVERVIEW 3
CHEMICALS AT THE CROSSROADS 4
A PICTURE OF A CHANGING INDUSTRY 2007–2010
CAP AND TRADE 10
CHEMICAL INDUSTRY WINNERS AND LOSERS
AN INDUSTRY TRANSFORMED 13
CHEMICALS M&A 2007-2010
2007-2010 CHEMICAL INDUSTRY SELECTED TRANSACTIONS 17
GRACE MATTHEWS SPECIALTY CHEMICAL PRACTICE 19
STRONG COMMITMENT TO CHEMICALS
GRACE MATTHEWS CHEMICAL TEAM
CONTACT INFORMATION
GRACE MATTHEWS RECENT CHEMICAL TRANSACTIONS 20
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CHEMICALS AT THE CROSSROADS SPRING 2010
KEY TAKEAWAYS
CHEMICALS AT THE CROSSROADS: A PICTURE OF A CHANGING INDUSTRY 2007-2010
� In general, the chemical industry continued to perform well in the first three quarters of 2008,
even as GDP began to decline. However, in the fourth quarter, orders and shipments collapsed
as problems in the financial sector finally spilled over into the industrial economy.
� Signs of recovery in the chemical industry began in early 2009, well ahead of the general
economy.
� Industrial output of U.S. chemicals is expected to grow 3.4% - 4.2% annually through 2012, but
this level of growth may depend on the successful execution of fiscal and monetary policy by the
federal government.
� EPA activism also could create headwinds for the U.S. chemical industry, limiting its prospects
for growth.
CAP AND TRADE
� The cap and trade bill now under consideration in congress will require companies to reduce
greenhouse gas emissions and will have effects on U.S. manufacturing that are difficult to
predict.
� Chemical companies will be affected disproportionately; large firms may be mostly unaffected or
even benefit. Smaller firms with less flexibility and scale will suffer.
� Cap and trade probably will not reduce greenhouse gas emissions without greater international
cooperation.
� Cap and trade legislation is unlikely to pass in its current form due to growing skepticism about
the underlying science and economics.
AN INDUSTRY TRANSFORMED: CHEMICALS M&A 2007-2010
� 2007-2008 was a period during which there were a number of multi-billion dollar, industry
“transformational” deals. Few large deals occurred in 2009 due to the credit crunch and
uncertainty surrounding the business and regulatory climate. Instead, buyers focused more on
lower-risk transactions that enhanced existing strategic strengths.
� The period leading up to the economic crisis of 2008-2009 was characterized by parity between
private equity groups and strategic buyers in terms of M&A activity and valuation.
� Strategic buyers, especially those with strong balance sheets, now have an advantage over
private equity groups that still have limited (but improving) access to the credit markets.
� 2010 is likely to be a good year for chemicals M&A due to rising valuations and pent-up
demand.
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CHEMICALS AT THE CROSSROADS SPRING 2010
U.S. CHEMICAL INDUSTRY:
A GRAPHICAL OVERVIEW
REVENUES AND GDP
U.S. Chemical Industry Revenues and GDP 2007 – 2009
Chemical Revenues Index
(Q1 2007 = 1)
Chemical Industry Value of Shipments
Millions of Dollars
$63,000
$61,000
$59,000
$57,000
$55,000
$53,000
$51,000
$49,000
$47,000
$45,000
Source: U.S. Census Bureau
Chemical Industry Production and Capacity Utilization
Production Index (2002=100)
1.40
1.20
1.00
0.80
0.60
0.40
0.20
120
115
110
105
100
95
90
-
Source: Bureau of Economic Analysis and Grace Matthews.
Chemical industry revenues are represented by the indexed
performance of 59 selected chemical companies.
REVENUES
GDP Percent Change
(Right Axis)
Capacity
Utilization
(right axis)
Source: Federal Reserve Board
Chemical Industry Revenues
(Left Axis)
Chemical
Production
(left axis)
-2.0%
-4.0%
-6.0%
-8.0%
PRODUCTION AND CAPACITY TRENDS
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6.0%
4.0%
2.0%
0.0%
GDP Percent Change
82%
80%
78%
76%
74%
72%
70%
68%
66%
64%
62%
60%
Capacity Utilization %
Revenue
GDP
Chemical Railcar Loadings: March 2007 – November 2009
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Trendline
Source: American Association of Railroads
Global Chemistry Production Outlook
% Change From Prior Period
RAILCAR LOADINGS
PRODUCTION OUTLOOK
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
Source: American Chemistry Council
INVENTORIES
Trendline
Ratio of Chemical Industry Inventories to Shipments:
January 2007 – October 2009
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
Source: Bureau of Labor Statistics
North America
Latin America
Western Europe
Russia & Eastern Europe
Africa & Middle East
Asia - Pacific
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CHEMICALS AT THE CROSSROADS SPRING 2010
CHEMICALS AT THE CROSSROADS:
A PICTURE OF A CHANGING INDUSTRY 2007-2010
Integrated into the supply chain for the production of everything from automobiles to pharmaceuticals,
chemical manufacturing is often viewed as a bellwether for the U.S. economy’s industrial output. As the
chemical industry goes, so goes GDP. As a result, it comes as no surprise that the extraordinary events
that have roiled the U.S. economy over the past two years have had a deep impact on the chemical
industry. What is surprising is that although the recession began in December 2007 1 , it wasn’t apparent
based on the performance of the chemicals industry until the fall of 2008, when the troubles in the
financial sector finally spilled over into the industrial economy.
Our analysis shows that
North American chemical
companies continued to
report revenue growth until
the third quarter of 2008,
even as real GDP began to
falter and then decline
(Figure 1). For example,
when year-over-year real
GDP declined by 0.7% in
the first quarter of 2008,
chemical industry
revenues grew by 4.6%.
Second and third quarter
growth was also strong,
coming in at 4.6% and
3.5% respectively. Some
Figure 1: U.S. Chemical Industry Revenues and GDP 2007 – 2009
Chemical Revenues Index
(Q1 2007 = 1)
1.40
1.20
1.00
0.80
0.60
0.40
0.20
-
GDP Percent Change
(Right Axis)
Chemical Industry Revenues
(Left Axis)
Source: Bureau of Economic Analysis and Grace Matthews. Chemical industry revenues are
represented by the indexed performance of 59 selected chemical companies.
of this growth can be attributed to chemical producers raising prices in response to higher energy costs,
but unit volumes also were increasing during this period. Weekly railcar loadings of chemicals – the
closest proxy we have to a real-time indicator of the health of the chemical industry – showed a steady
uptrend during this period, with volumes rising nearly 4% between March 2007 and September 2008. 2
(Figure 2). But there were warning signals that things were about to change. Fundamentals were
deteriorating in the first half of 2008. Margins were being squeezed, especially for manufacturers of
commodity petrochemicals that were challenged by rising energy and feedstock costs during what in
retrospect was the third financial bubble of the decade: a period when the price of crude oil more than
doubled in less than 18 months to a record level of over $147 per barrel. 3 Production and capacity
utilization were declining, partly due to increased energy costs and partly due to weakening demand in
end markets – notably housing and construction, but also in other consumer durables markets such as
automobiles and electronics (Figure 3).
1 The National Bureau of Economic Research, a group of private economists charged with dating business cycles, announced in
December 2008 that business activity had peaked in December 2007, marking the beginning of the recession.
2 Chemical railcar loadings are published weekly by the Association of American Railroads, and measure the number of freight
cars loaded with chemical products in the previous week. Though it does not measure tonnage, it is still a useful and timely
measure of unit volume trends. The American Chemistry Council reports that railroad shipments account for about 23% of chemical
transportation tonnage and 20% of chemical transportation costs.
3 The first two bubbles were, of course, technology stocks during 1997 - 2000 and real estate between 2003 and 2007. Financial
bubbles may be recognizable only in retrospect, and it may be too early to say whether oil prices in 2007-2008 were a classic
bubble. But the evidence speaks for itself. The rapid increase between January 2007 and July 2008 was hardly justified by global
industrial production, supply constraints, or any other macro variable that affects the price of oil. Also, as steep as the increase in
crude oil prices was, the fall was even steeper: on December 21, 2008, oil was trading at $33.87 per barrel, less than ¼ of the
$147.27 record reached a little over four months earlier on July 11 th .
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6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
GDP Percent Change
Revenue
GDP
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CHEMICALS AT THE CROSSROADS SPRING 2010
And then came the 4 th quarter of 2008, which effectively began in mid-September with the bankruptcy of
Lehman Brothers and the $85 billion bailout of AIG by the Federal Reserve. These two events seemed to
expose all the excesses in the financial markets that had been building for years. The financial system
came very close to a “systemic” collapse, nearly dragging the entire global economy with it. Although the
economy had already been in recession for almost a year, economists then were seriously debating
whether a repeat of the Great Depression was at hand.
To avoid a worst case
scenario, the Federal Reserve
cut interest rates nearly to
zero and injected trillions of
Figure 2: Chemical Railcar Loadings: March 2007 – December 2008
40,000
Trendline
35,000
dollars into the economy to
boost liquidity, while Congress
30,000
passed first the Troubled
25,000
Asset Relief Program 20,000
(“TARP”) and then a massive 15,000
$787 billion stimulus plan
initiated by the new Obama
10,000
administration. The credit 5,000
markets were effectively
frozen as banks, no longer
sure how to value certain
-
financial assets on their Source: American Association of Railroads
balance sheets, refused to
make new loans as they hoarded cash as a reserve against future write-downs they believed were
inevitable. In short, banks’ earnings became irrelevant as liquidity became the only meaningful metric.
Figure 3: Chemical Industry Production and Capacity Utilization
Production Index (2002=100)
120
115
110
105
100
95
90
Capacity
Utilization
(right axis)
Source: Federal Reserve Board
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# of Railcars
The ripple effects of the turmoil in the financial markets on chemical manufacturing, as with just about
every other industry, were dramatic and immediate. In the fourth quarter of 2008, demand for chemicals
collapsed along with consumer spending, and inventory levels rose as companies could not cut
production fast enough. (Figure 4).
Chemical
Production
(left axis)
82%
80%
78%
76%
74%
72%
70%
68%
66%
64%
62%
60%
Capacity Utilization %
In late 2008 and early 2009, BASF,
Dow Chemical, PPG, Ineos,
Eastman, 3M, Praxair, Huntsman
and others announced plant
closures, layoffs or other
restructuring initiatives. For some,
that wasn’t enough: LyondellBasell,
Chemtura, and Tronox had to seek
Chapter 11 bankruptcy protection.
Pending M&A transactions were
delayed due to difficulties in
obtaining financing or the
deteriorating financial performance
of the target companies. And some
high-profile deals, like Hexion’s
agreement to acquire Huntsman,
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CHEMICALS AT THE CROSSROADS SPRING 2010
were cancelled outright, and
the uncertainty surrounding
Dow’s acquisition of Rohm &
Haas remained up until the
day of closing.
In the first few months of
2009, there was a relentless
1.25
parade of bad news, but the
1.20
seeds of recovery had been
planted. The stock market
1.15
turned around in early March
1.10
of 2009; the credit markets 1.05
began to thaw, and by
summer, GDP was growing
again. Using the chemical
1.00
industry as a bellwether for
the larger economy, incipient
Source: Bureau of Labor Statistics
signs of recovery were
beginning to take hold as early as January 2009. Weekly chemical railcar loadings, which plunged in the
last four months of 2008, stabilized in January and stayed within a relatively tight range of 24,000 to
27,000 carloads per week until mid-summer, when a discernable uptrend began to take hold (Figure 5).
Industrial production of chemical products and capacity utilization also began to make a strong comeback
beginning in January. Throughout the year, a weakening U.S. dollar supported exports, and the chemical
industry was able to take advantage of relatively strong demand in emerging markets such as China,
where many major producers had built new plants in previous years. In the fourth quarter of 2009, BASF,
Dow, RPM, A. Schulman, and PPG all reported improvements in profits as a result of cost-cutting, even
though revenues continued to be weak.
For 2010, absent any unforeseen shocks to the financial system or a relapse into a double-dip recession,
we can expect continued improvements in profitability as the benefits of cost-cutting and restructuring
undertaken in 2009 impact the bottom line. Revenues also should begin a gradual recovery as the
economic expansion spreads and deepens in all sectors of the economy. According to the American
Figure 5: Chemical Railcar Loadings: March 2007 – November 2009
Chemistry Council, global
chemical industry output is
40,000
projected to increase 4.6% in
35,000
Trendline
2010, offsetting a decline of
30,000
Trendline
that percentage in 2009,
although this improvement
25,000
does not return production to
20,000
previous levels. Growth in the
15,000
developed economies – North
America and Europe – will not
10,000
be as strong as in Asia and
5,000
other developing regions. The
-
ACC projects growth of 3.4% in
the U.S. and 2.7% in Western
Europe for the chemical
Source: American Association of Railroads
industry. The real growth will
be in the emerging markets,
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Figure 4: Ratio of Chemical Industry Inventories to Shipments:
January 2007 – October 2009
1.35
1.30
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CHEMICALS AT THE CROSSROADS SPRING 2010
with chemical production in
the Asia-Pacific region
growing at 6.9% and Latin
America at 4.8%. China,
supported by the
government’s heavy
investments in the materials
industries, is expected to
grow by more than 11%
(Figure 6).
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Figure 6: Global Chemistry Production Outlook
% Change From Prior Period
% Change From Prior Period
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
North America
Latin America
Western Europe
Russia & Eastern Europe
Africa & Middle East
Asia - Pacific
Looking beyond 2010, the
prospects for the U.S.
chemical industry are less
clear, and the growth
scenario described above
depends very much on the
ultimate success of the
government’s recent fiscal
and monetary policy. It may
be true that the extraordinary
and unprecedented efforts of
Chemistry Production Outlook: Selected Countries
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
United States
Brazil
Germany
China
India
the federal government
-15.0%
during late 2008 and early
2009 stabilized the financial
-20.0%
markets and set the stage
for recovery. But it may be
Source: American Chemistry Council
too early to tell whether this will “work” in the long-run, because whatever the short-term effects, the
ultimate economic costs of the government’s actions are still undetermined. The expansion of the money
supply and the federal debt over the past 16 months are the largest ever in peacetime, and to think these
expansions will not have unintended, and perhaps difficult to control, side effects may be extraordinarily
naïve. Federal Reserve Chairman Ben Bernanke has been glib about the Fed’s loose monetary policy,
merely saying that, at the appropriate time, the central bank will act quickly to withdraw excess liquidity to
ward off any incipient inflation.
As for the fiscal stimulus, ramping up government spending to stimulate the economy historically has
come too late in the cycle to do any good, and ends up mostly just ratcheting up the national debt and
increasing the pressure for new taxation. 4 Also, the effects of the fiscal stimulus may prove to be fleeting.
Spending on infrastructure and other “hard asset” projects may benefit chemical manufacturing in the
short-term, but lasting, long-term growth will depend on the health of consumer markets. If consumer
demand remains weak because of a lingering debt burden, chemicals -- specialties in particular -- could
become mired in a low-growth scenario for years. The “Cash for Clunkers” program may offer a preview
of this dynamic: vehicle sales rose dramatically during the summer of 2009 when the program was in
effect, but fell off quickly once the program was discontinued in August. 5
4 Of the six fiscal stimulus packages passed in response to the six recessions between 1948 and 1982, all were enacted after the
recovery already had begun. See “If it Ain’t Broke, Don’t Fix It”, Bruce Bartlett, Wall Street Journal, Dec. 2, 1992. That the chemical
industry began to recover as early as January 2009 suggests that this recession and recovery may be following a familiar pattern.
5 As further evidence that the effects of government stimulus may be temporary, consider that in November 2009, housing sales
fell by 16% as home buyers anticipated the expiration of the homebuyer’s tax credit. The tax credit has since been extended to April
2010.
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CHEMICALS AT THE CROSSROADS SPRING 2010
Added together, the after-effects of the federal government’s recession-fighting policies of 2008-2009
could mean higher inflation, persistently high unemployment, and anemic real economic growth. In short,
we could be headed for a return to the stagflation economy of the 70s.
It doesn’t take too much imagination to think how this might affect a still weakened industry. If you paid
attention only to the stock market, you might think a “V” shaped recovery was underway, but the
fundamental data doesn’t support this view. Though chemical industry shipments stabilized in 2009
(Figure 7), it’s like a “reset” button was pressed: growth is slow and fragile from a lower baseline, and it
will be a long time before industry shipments return to the peak level attained in the summer of 2008.
Other signs of fragility: a downtrend in industry employment, on-going for many years, accelerated during
the downturn and shows no signs of recovery. With all the plant closings and tightened credit conditions,
business investment is down and capacity for many basic chemicals is shifting overseas.
Figure 7: Chemical Industry Value of Shipments
$63,000
There are other industry-specific risks
that will affect chemical manufacturers
over the next few years.
$61,000
Manufacturers are beginning to brace
$59,000
for a less business-friendly regulatory
$57,000
environment. With the new
$55,000
Democratic administration, an
$53,000
emphasis on going “green” is going to
$51,000
become more pronounced as the
$49,000
focus shifts in 2010 from healthcare
$47,000
and financial reform to environmental
$45,000
and energy policy. Though the shift to
a greener economy will offer
opportunities for chemical
Source: U.S. Census Bureau
manufacturers in the long-term, the
transition is not likely to be without
pain. Cap and trade, the subject of the following article, if passed would disproportionately cut into the
profitability of the U.S. chemical industry and put it at a competitive disadvantage relative to foreign
competitors who don’t have the same constraints.
Millions of Dollars
The EPA has already adopted a more activist posture, having determined last April that six greenhouse
gases pose a threat to human health and should be regulated under the Clean Air Act. A likely outcome
is that energy-intensive industries, such as chemicals and steel, would have higher operating costs if
carbon dioxide is regulated and would then have an additional motivation to move production overseas.
Also on the EPA’s agenda is the reform of the Toxic Substances Control Act (TSCA). Proposals under
consideration include fees on chemical manufacturers to help pay for safety assessments of commercial
compounds and easing limitations on the agency’s ability to place restrictions on or ban chemicals that
are not considered safe.
Further, the Obama administration appears to be the most union-friendly administration since FDR.
President Obama and a number of other Democratic congressional leaders support the Employee Free
Choice Act (EFCA), now under consideration in Congress. If passed, the Act will amend the National
Labor Relations Act to allow “card check”, a method that would enable employees to organize a union by
getting a simple majority of employees to sign authorization forms, or “cards”, stating they wish to be
represented by a union. It would make unions easier to organize by by-passing the typical process of
having employees vote to unionize through secret ballots. As pointed out by its many critics, eliminating
the secret ballot opens the way for coercive tactics on the part of labor organizers and strips away an
employee’s right to privacy in deciding whether to support union representation. If passed, the Act will
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CHEMICALS AT THE CROSSROADS SPRING 2010
inevitably raise labor costs for smaller manufacturers and put them at a relative disadvantage to foreign
competitors who have access to non-unionized labor.
If we have focused on some of the more difficult challenges facing the chemical industry, we want to
emphasize that these issues affect the short-term outlook the most, and that growth resulting from
innovation, the real driver of long-term change in the chemical industry, is difficult to predict and even
harder to quantify. Ten years from now, the U.S. chemical industry is likely to look considerably different
than it does today. Where practical, production of basic petrochemicals and inorganics probably will have
shifted overseas. U.S.-based operations will largely consist of specialty manufacturers who have been
able to adapt to the changed economics of the 21 st century. The trend for some specialty chemicals to
become commodities will have continued, with manufacturers that have focused of developing brands
supported by low-cost manufacturing, efficient distribution, and excellent customer service likely to be
survivors. But there will be newer “specialties” coming online that will represent a new, high-tech image
for the industry. Nanotechnology, energy storage, and bio-polymers are just three examples of areas that
are ripe for innovation and commercialization. Just as digital computers may have been the cutting-edge
industry in the 20 th century, material science -- in particular chemical material science -- may be the
cutting-edge industry in the 21 st.
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CHEMICALS CHEMICALS AT AT THE THE CROSSROADS CROSSROADS SPRING SPRING 2010 2010
CAP AND TRADE: CHEMICAL INDUSTRY WINNERS AND LOSERS
Over the past year a carbon dioxide (CO2) cap and trade program, known as the Waxman-Markey bill, has been
making its way through the United States Congress. The purported goal of the controversial bill is to address global
warming and encourage the development of new, clean energy technologies. Controversial from the beginning, the
bill has measures that could impose costly restrictions on energy-intensive industries, ultimately reducing their
international competitiveness, lowering profitability, and likely eliminating jobs. Support from Democratic politicians
and environmentalists, particularly after the Democrats won control of Congress and the White House in 2008, had
outweighed the opposition from the Republican Party and other interested parties. However, recent developments
surrounding the rigor of data collection and analysis supporting claims of climate change (including the possibility of
deliberate misrepresentations and the suppression of contravening evidence) have raised questions about the
likelihood of passage.
The key provisions of the bill, if ratified, will limit, or “cap”
CO2 emissions in the U.S. The cap is set to decline over
time, forcing carbon emissions to fall to 83% of 2005 levels
by 2020 and eventually to 17% of 2005 levels by 2050.
Regulated entities, such as companies in carbon-intensive
industries (e.g., electric power utilities; steel, chemical and
other heavy manufacturers) would be required to hold
allowances that permit them to emit CO2, with each
allowance worth one metric ton of CO2. Initially, all major
emitters of CO2 would receive allowances sufficient to cover
their current level of emissions. After this initial distribution,
a market for trading allowances would develop, providing
allowance holders the ability to sell their unused allowances
to other companies. In practice, as the annual cap is
reduced and the total number of allowances in circulation
declines, companies would be forced to either reduce
emissions or purchase additional allowances on the open
market. In theory, it would be a relatively straight-forward
economic decision: a company will choose whichever
option is less expensive at the time. But as in any free
market, as the supply of allowances decreases over time,
their prices will rise, and choosing emissions abatement will
increasingly become the more attractive option.
The plan appears as if it would work mechanically, but it is
clear that cap and trade will raise the price of energy and
energy-related goods to American consumers; the question of “how much” has been the subject of much
controversy 6 . What has not received as much attention is just how much cap and trade is going to harm U.S.
industry’s competitive position against foreign companies that do not operate under such restrictions, especially in
emerging economies such as India and China. Steel, paper and chemicals, all of which are carbon-intensive and
face tight competition in the global marketplace, would be especially affected.
6 Based on an analysis of a discussion draft of the bill, the Environmental Protection Agency estimates that cap and trade would cost the
average household between $98 and $140 per year. The Congressional Budget Office estimates that the bill would be relatively deficit neutral
for the federal government, with an average cost to households of about 0.2% of annual income. Other groups have disputed these estimates:
the Competitive Enterprise Institute believes the bill would be essentially the “largest tax hike in history”, and the American Petroleum Institute
estimates that the bill would raise the price of gasoline and other fuels to the equivalent of $4.00 a gallon by today’s standards.
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CHEMICALS CHEMICALS AT AT THE THE CROSSROADS CROSSROADS SPRING SPRING 2010
2010
One of the largest sources of CO2 emissions in the U.S., accounting for about 5% of the total, is the chemical
industry. The effects of limiting CO2 emissions and carbon trading on the industry are likely to be complex, and to
the extent that some companies may be able to pass their increased costs on to consumers, they may benefit from
the program. Increased costs at the end-user level also will raise demand for energy-saving products such as a
hybrid vehicles, solar panels, and energy-efficient appliances. Manufacturers that provide materials used in energysaving
products (e.g., silicon used to manufacture solar panels) may experience sales growth from increased
product demand. DuPont, for example, expects its sales of renewable materials that displace fossil fuels to double
to $8 billion by 2015 7 .
But the fact remains that, over time, the cap will be reduced, and an allowance to emit CO2 will become increasingly
expensive, disproportionately affecting chemical manufacturers. For large chemical players, the effects of cap and
trade on overall company profitability may be minimal. These companies can access new carbon abatement
technologies and other alternative energy programs, and spread their cost over a large revenue and asset base. In
general, they also have greater flexibility than smaller companies in addressing the issue: some are installing
projects that will lower both their energy costs and CO2 emissions, potentially allowing them to generate revenue by
selling their unused allowances. Dow Chemical, for example, uses methane from a landfill to power a plant in
Dalton, GA, where it makes carpet backing. Further, from an unpleasant realpolitik perspective, large firms, through
political connections and lobbyist efforts, have an advantage over their smaller competitors in shaping the details of
the legislation.
Additionally, large chemical players can roll out abatement technologies and new energy-saving programs over a
large pool of operating plants. They can shift production to their more efficient facilities, and as more emissionabatement
programs are employed throughout their companies, implementation costs will decrease. They can also
transfer production overseas, where many already have established operations in regions that don’t regulate CO2
emissions, such as Asia or the Middle East.
On the other hand, small chemical firms likely will face a different set of challenges. These firms may have limited
access to capital and/or carbon abatement technologies. They may not be able to shift production to more efficient
plants or overseas, leaving them no choice but to purchase additional allowances or install abatement technologies.
The effects may be especially harmful to small companies that are growing – and creating jobs. With their CO2
emissions capped and with the cap declining every year, incremental revenues from growth will be accompanied by
escalating costs, such that requiring them to pay to emit more CO2 would act as a disincentive, slowing or even
curtailing their growth. It will create a “Wizard of Oz” - like situation for mid-sized U.S. based manufacturers:
“Surrender Dorothy” is writ large on the horizon. Passage of Waxman-Markey will likely drive a number of viable,
privately-held U.S. chemical manufacturers toward selling to major multinationals.
If the Waxman-Markey bill is ratified, large chemical manufacturers will ultimately be in a position to benefit at the
expense of smaller manufacturers – indeed, that may be one reason why some large companies have come out in
support of the bill. Whether the bill will actually mitigate global warming is open to question, especially since any
meaningful reduction in global greenhouse gas emissions will require significant cooperation at an international
level.
This being the case, the issue may really come down to whether it is good industrial policy for the United States to
penalize smaller manufacturers – especially those using energy intensive processes -- for their success, especially
since small companies have historically created most of the new jobs in our economy. The bill may be wellintentioned,
but unless it has some reasonable chance to achieve its goals, why does it make sense if its only real
effect would be to hurt U.S. manufacturing and ship jobs overseas?
Throughout much of 2009, the chances for passage of the bill appeared high. The bill was passed in the House of
Representatives over the summer of 2009 and sent on to the Senate. The bill faces a tougher environment there,
7 The Wall Street Journal, “Chemical Makers Poised to Gain in New Cap-and-Trade System”, June 2009.
Grace Matthews, Inc.
11

CHEMICALS AT THE CROSSROADS SPRING 2010
especially given the Republican party’s nearly unanimous opposition and the loss of the Democrat’s filibuster-proof
supermajority with the election of Republican Scott Brown to the vacant Massachusetts Senate seat. Further, there
is a growing suspicion among the electorate that “cap and trade” is much more about favorable economics for those
who cap and those who trade, instead of making a true impact on limiting climate change. Finally, climate change
skeptics are now being taken seriously in both scientific and media circles, which hopefully will lead to better
science and more intelligent legislation.
Grace Matthews, Inc.
12

CHEMICALS AT THE CROSSROADS SPRING 2010
AN INDUSTRY TRANSFORMED:
CHEMICALS M&A 2007-2010
For most of the first decade of the century, chemicals had all the characteristics that make for a robust M&A market:
the emergence of multi-national players with an appetite for growth, the prospect for enhanced profitability through
synergies and economies of scale, the easy availability of debt financing and private equity capital, and especially a
pipeline of attractive assets – with valuations rising, shareholders of privately-held firms with strong cash flows and
defensible market niches were more than willing to bring assets to market. Established chemical strategic firms,
understanding that the surest way to grow faster than the economy was through acquisitions, transformed
themselves into multi-nationals with diverse product portfolios that extended into a number of end-use markets.
The apex for chemicals M&A was 2007, when
transactions totaling more than $55 billion in
value were completed, 31% higher than the
previous record year of 2006 with $42 billion 1 .
The numbers were skewed somewhat by a
number of “transformational” mega-deals, that
is, large transactions that represented a
fundamental make-over of a well-known
company and by implication altered the shape
of the entire industry. In 2007, Basell merged
with Lyondell in a deal valued at $19.2 billion
and Sabic purchased General Electric’s
plastics business for $11.6 billion. Other
industry-shaping transactions that were
announced in 2007, but not completed until early 2008, included Akzo Nobel’s acquisition of ICI for $16.6 billion and
PPG’s purchase of SigmaKalon Group for $3.2 billion.
2007 also may have been the high-water mark for private equity’s investment in the industry. Since 2003, private
equity firms had been raising significant amounts of new capital, and with easy credit availability, were under
pressure to put those funds to work (Figure 2). Private equity played a big role in the steady upward trend in
chemical transaction multiples during this period, and to many investment bankers working in the chemicals area, it
appeared that private equity buyers basically had parity with strategics when it came to competing for high-quality
assets. Because private equity funds had access to easy credit and were investing in market segments that were
consolidating, many became quasi-strategic firms
Figure 2: Private Equity Capital Raises 2003 – 2008 themselves, as they first acquired a platform company
and then followed up with additional strategic bolt-on
$700.0
acquisitions.
Yearly Total in Billions of Dollars
$600.0
$500.0
$400.0
$300.0
$200.0
$100.0
$0.0
Source: Thompson Financial
1 Estimated by Young & Partners, New York, counting transactions with a value greater than $25 million.
Grace Matthews, Inc.
Buyouts/Corporate
Finance
Venture Capital
Mezzanine
Other Private Equity
Fund of Funds
Figure 1: “Transformational” Deals 2007-2009
Buyer Target Closed Value
Basell Lyondell 2007 $19.2 Billion
Dow
Chemical
Rohm & Haas 2008 $18.8 Billion
Akzo Nobel ICI 2008 $16.6 Billion
Sabic GE Plastics 2007 $11.8 Billion
Henkel
Adhesives and
Electronics Materials
Business of National
Starch & Chemicals
2009 $5.4 Billion
Ashland Hercules 2009 $3.1 Billion
The credit crunch that began in the summer of 2007
seemed initially to affect only the larger transactions,
particularly those that were highly leveraged. Hexion’s
aborted acquisition of Huntsman is a case in point. At
the height of the M&A boom in June 2007, Hexion,
owned by private equity giant Apollo Management,
outbid Basell to announce that it would acquire
Huntsman for $10.4 billion. But as the credit crisis and
the economic downturn deepened, Huntsman’s
13

CHEMICALS CHEMICALS AT AT THE THE CROSSROADS CROSSROADS SPRING SPRING 2010
2010
performance deteriorated. First Apollo and Hexion, and then their banks, tried to back out of the deal, claiming that
Huntsman’s level of debt would render the combined companies insolvent. Huntsman went to court, and eventually
settled with Apollo, Hexion and the banks for a combined $2.7 billion.
Smaller transactions continued to close through the fourth quarter of 2007 and the first three quarters of 2008.
Strategics often could fund deals with cash, stock, or a combination of the two, and private equity buyers could be
more creative with transaction structures and financing arrangements. But as 2008 progressed, deal volume
slowed as banks continued to tighten lending standards as the sub-prime crisis began to spill over into other sectors
of the credit markets.
Figure 3: Enterprise Value/Revenues 2007 – 2009
After the collapse of Lehman Brothers in
September, the financial markets entered into a
period of near chaos that lasted through the
end of the year. Most potential buyers and
sellers could not justify entering the M&A
market at this time. With the economy in the
midst of the worst recession since World War II,
revenue and earnings visibility was nonexistent,
making it nearly impossible for
potential buyers to get an accurate read on a
company’s future cash flows. Valuation
became a matter of guess work, with neither
public company values nor private transactions
having much to offer in the way of guidance.
Public company multiples, after declining in late
2008, actually began to increase after the first
quarter of 2009, but this was due to a combination of depressed revenues and earnings and increasing market
capitalizations after the stock market turned around in early March. But most investors recognized these “improved”
valuations for what they were: statistical outliers that are typical at the end of a recession or the beginning of a
recovery (Figure 3). Many would-be sellers of quality chemical firms, aware that private market values remained
down, realized that there was just too much risk involved in putting their companies on the market. Under the
circumstances, it was easier to just do nothing, preserve cash, and wait for the markets to stabilize and a
sustainable recovery to begin.
Some strategic transactions continued to move forward, but there were many roadblocks on the way to closing.
The experience of Dow Chemical was symptomatic of many companies trying to do deals during this period.
Determined to remake itself into a less-cyclical, more-specialties focused company, Dow in July 2008 announced it
would acquire Rohm & Haas for $18.8 billion. Late in 2008, a planned JV with Kuwait’s Petrochemical Industries
Company fell through. Dow, which had been counting on receiving $9 billion from the JV that would be used to
support the Rohm & Haas deal, found itself without the financing it needed to complete the transaction. Dow and
Rohm & Haas both made their case in court, and after a three month delay, the deal did close in April 2009.
Both the economy and the financial markets stabilized in the first quarter of 2009, and deal flow gradually began to
recover. Though overall deal activity for 2009 was down even from the depressed levels of 2008, there are signs
that conditions are improving. Banks, though still cautious, are lending again, and cash-rich companies have begun
making acquisitions where they can find a good value and a solid strategic rationale. Restructuring efforts have
also begun to pay off, with some companies under leveraged or flush with cash that could be used to support
acquisitions.
We believe that 2010 is going to be a surprisingly good year for chemicals M&A. There has been nearly two years
of depressed activity during which a number of high-quality companies have been withheld from the market.
Grace Matthews, Inc.
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Source: Grace Matthews’ analysis of 59 selected publicly traded chemical
companies
14

CHEMICALS AT THE CROSSROADS SPRING 2010
Multiples may come back sooner than many have expected, and as soon as a few deals close at good valuations, a
lot of good companies are going to come to market.
Those in the best position to move forward
are the well-capitalized strategic buyers
(Figure 4). Simply put, companies with low
debt, excess cash balances, and strong
operating cash flows can “afford” the risk of
making acquisitions, whereas competitors
with weaker balance sheets cannot. And if
they have a history of successful growth
through acquisitions, now may be a great
time for these companies to seek out highquality
targets. As an example, coatings
companies like Akzo Nobel, PPG Industries,
RPM, Valspar, and Sherwin-Williams,
among others, have managed to emerge
from the recession with relatively strong
balance sheets and have a core
competency in strategic M&A. Many of
these companies can pursue opportunities
without the need to seek outside financing
or, if they choose to do so, can receive
favorable terms based on the strength of
their balance sheets.
A recent pick-up in M&A activity suggests
that large, billion-dollar strategic deals may
be ready for a comeback. An example is Air
Products’ recent efforts to acquire Airgas.
In September 2009, Air Products offered an
all stock deal to Airgas, and when that was
rejected, offered a combination of stock and
cash that was also rejected as
“undervalued” by Airgas’s board. In early
February 2010, Air Products came back
with an all cash proposal of $60 per share, representing a 40% premium over the price Airgas’s stock was trading at
before the offer. Air Products had already received a commitment for debt financing from J.P. Morgan. Although
there are solid strategic reasons for merging the companies, Airgas’s board still believed the offer “grossly
undervalued” Airgas, and rejected the proposal. At the time of this writing, Air Products is going hostile with their
bid.
Without the driver of potential synergizes, private equity firms face a more challenging landscape, but given that
they have a lot of capital and chemicals are an attractive area to invest, they are likely to compete for high-quality
assets. Dow Chemical, for example, has put its $5.0 billion/year styrenics and aromatics business on the block, and
a number of private equity group have shown interest, including Apollo, Bain Capital, TPG Capital, and Rhone
Capital. Credit conditions are improving, and banks are likely to loosen restrictions even more as the economy
improves. Until that time, private equity groups will compete by being more creative with deal structures. One
approach is to “over-equitize” a transaction, where the private equity group initially invests more equity in a deal and
Grace Matthews, Inc.
Figure 4: Financial Strength of Selected Chemical Manufacturers
Net Debt*
/ EBITDA
Enterprise
Values /
Revenues
(ttm)
Enterprise
Value /
EBITDA
(ttm)
3M 0.4 2.6 9.8
Akzo Nobel N.V. 1.0 0.9 7.2
Air Products & Chemicals, Inc. 2.0 2.6 10.5
Albemarle Corporation 1.6 1.2 12.8
Ashland Inc. 1.6 0.5 5.6
BASF Corporation 1.5 0.9 5.9
The Dow Chemical Company 5.2 1.2 16.1
Cytec Industries, Inc. 2.3 0.9 9.7
DSM N.V. 1.6 0.9 8.4
DuPont 2.3 1.4 10.8
Eastman Chemical Company 1.3 1.0 7.9
H.B. Fuller Co. 0.7 0.9 7.6
The Lubrizol Corporation 0.6 1.4 7.0
Olin Corporation NA** 0.8 5.2
PPG Industries, Inc. 1.9 1.0 9.1
RPM International 1.4 0.9 7.7
The Sherwin-Williams Company 0.7 1.1 8.8
Sensient Technologies Corp. 2.2 1.5 8.8
The Valspar Corporation 1.7 1.2 8.4
W.R. Grace & Co. 0.4 0.6 5.9
Median 1.6 1.0 8.4
Mean 1.6 1.2 8.7
*Net Debt = Funded debt minus cash and cash equivalents.
**Cash balances exceeds debt
15

CHEMICALS AT THE CROSSROADS SPRING 2010
seeks debt financing later. Other alternatives include using earn-outs, seller notes, and “in-house” debt as
substitutes for traditional bank financing.
One issue that private equity investors will have to face in the next few years is their exit strategy for portfolio
companies acquired in the pre-recession period when valuations were at a peak. If a portfolio company was
purchased at a cyclical peak for a high multiple, a private equity seller would do well to consider a customized
approach to selling the business. A traditional process that results in bids that are all below an acceptable threshold
can be a disaster: the company may have to be pulled off the market and its future value could be significantly
impaired. A better course may be a targeted, yet still competitive, process, where the potential buyers would be
limited to those that have an exceptional strategic or synergistic fit with the portfolio company. In these cases,
extensive up-front work is necessary to identify and quantify the fit with the strategic buyer in order for the seller to
share in the value of the merger.
Grace Matthews, Inc.
16

CHEMICALS AT THE CROSSROADS SPRING 2010
2007-2010 CHEMICAL INDUSTRY SELECTED
TRANSACTIONS
DATE ACQUIRER TARGET
Feb-10 Sherwin-Williams Industrial Coatings Business of Arch Chemicals
Jan-10 Arkema
Dow Chemical’s Acrylic Acid & Esthers Business / Specialty Latex
Business
Jan-10 Zep
Amrep
Nov-09 Ellipse Capital Ward Adhesives
Nov-09
Oct-09
Oct-09
Dow Corning
Grace Matthews, Inc.
American Securities Capital
Partners
Milliken Chemical
Globe Specialty Materials US and Brazilian Silicon Metal Manufacturing
Assets
GenTek
Rebus
Aug-09 GenNx360 Capital Partners Clariant Corporation’s Specialty Silicones Business (SiVance, LLC)
Aug-09
Honeywell
RMG Group
Jul-09 Altana Water Ink Technologies
Jul-09
Praxair
Sermatech International
Jun-09 Sun Chemical Handschy Industries
Jun-09
DSM
Biopract
Jun-09 LANXESS Gwalior Chemical Industries
May-09
Clariant
XL Performance Chemicals
Apr-09 H.B. Fuller Nordic Adhesives
Apr-09
Dow Chemical Company
Rohm & Haas
Apr-09 Bayer AG Polyurethane Systems House of Neochimiki
Apr-09
Sherwin-Williams
Altax
Apr-09 Clearview Capital Troy Industries
Apr-09
Rhodia
McIntyre Group
Apr-09 Akzo Nobel NV Kronochem's Wood Adhesives Business
Feb-09
Venture Tape Corp (3M)
Feb-09 RPM Karochemie
Jan-09
Arkema
Compac Corp.'s Pressure Sensitive Adhesives Assets
Organic Peroxide Business of GEO Specialty Chemicals
Dec-08 Lubrizol Dow Chemicals' Thermoplastic Polyurethane (TPU) Business
Dec-08
Kermira
Finncolor Slovakia
Dec-08 Altana Clariant's Wax Additives Business
Dec-08
Pre-Pak Systems, Inc.
Nov-08 Ashland Hercules
Nov-08
Arsenal Capital Partners
Celeste Contract Packaging
Ferro's Fine Chemicals Business
Nov-08 Akzo Nobel NV LORD Corporation's Photoglaze® Resilient Floor Coatings Business
Nov-08
Flint Group
Russell-Webb
Oct-08 Arch Chemicals Advantis Technologies
Oct-08
Yara International ASA
Saskferco Products Inc.
Sep-08 Colorcon Chr. Hansen Excipients Business
Sep-08
Sherwin-Williams
Aug-08 Albemarle Sorbent Technologies
Aug-08 3M Polyfoam Products
Liquid Coatings Subsidiaries of Inchem Holdings
17

CHEMICALS AT THE CROSSROADS SPRING 2010
2007-2010 CHEMICAL INDUSTRY SELECTED
TRANSACTIONS
DATE
Aug-08
Aug-08
Jul-08
Jul-08
Jul-08
Jun-08
Jun-08
Jun-08
Apr-08
Apr-08
Mar-08
Mar-08
Mar-08
Feb-08
Feb-08
Feb-08
Feb-08
Feb-08
Jan-08
Jan-08
Jan-08
Dec-07
Nov-07
Nov-07
Aug-07
Aug-07
Aug-07
Jul-07
Jul-07
Jul-07
Jul-07
Jun-07
May-07
Mar-07
Mar-07
Mar-07
Jan-07
ACQUIRER
Sherwin-Williams
Altana
Elementis
PPG Industries
Berwind
H.I.G. Capital, LLC
Insight Equity
Ashland
Grace Matthews, Inc.
SK Capital Partners
Henkel KGaA
PPG Industries
Industrial Equity Investment Ltd.
(Permira Funds)
Tata Chemicals Ltd.
Emerald Performance Materials
LLC
Mentor Partners of Boston/Adco
Cleaning Products Valspar
DuPont
INEOS Group Holdings PLC
Akzo Nobel NV
PPG Industries
Aurora Capital Group
Basell NV
3M
Lubrizol
Saudi Basic Industries Corp.
(SABIC) Ceradyne
RoundTable Heathcare Partners
Akzo Nobel NV
The Carlyle Group
LG Chem Ltd.
CVC Capital Partners
Abraaj Capital
National Titanium Dioxide Co.,
Ltd.
Becker Industrial Coatings
Reliance Industries Ltd.
Givaudan S.A.
Court Square Capital
TARGET
Columbia Paint & Coatings
United States Bronze Powders Inc. (USBP) Effect Pigment Business
Deuchem Co.
Vanex
Specialty Coating Systems
Croda's Oleochemicals Business
Superior Silica Sands
Air Products' Pressure-Sensitive Adhesive and Atmospheric Emulsions
Businesses
Aristech Acrylics
National Starch & Chemical Adhesives & Electronic Materials
NanoProducts Corp.
Arysta LifeScience Corp (Olympus capital Holdings Asia)
General Chemical Industrial Products, Inc. (Harbert Management Corp.)
CVC Specialty Chemicals, Inc.
Chemical Products Division of Laidlaw
Aries Coil Coatings SA de CV
Chemtura's Fluorine Chemicals Business
Kerling ASA (Norsk Hydro ASA)
Imperial Chemical Industries plc
SigmaKalon Group BV
NuCO2 Inc.
Lyondell Chemical Company
RPM's Bondo Business
Croda’s Refrigeration Lubricants Business
GE Plastics
Minco
Vesta
Chemcraft International
PQ Corporation
LG Petrochemical
Taminco
Egyptian Fertilizers Company
Lyondell Chemical Company's Titanium Dioxide Unit
Specialty Coatings
Indian Petrochemicals Corporation Ltd.
Quest International
MacDermid Incorporated
18

CHEMICALS AT THE CROSSROADS SPRING 2010
GRACE MATTHEWS SPECIALTY CHEMICAL PRACTICE:
STRONG COMMITMENT TO CHEMICALS
Grace Matthews’ chemical investment
banking practice is global in scope and is
well-known for its strong track record of
successful chemical industry transactions
dating back to the early 1990s. We have
direct ties to chemical industry leaders
worldwide, and have completed transactions
with such companies as Akzo Nobel, 3M,
DuPont, Sherwin-Williams, PPG Industries,
Ashland, Ceradyne, DSM, ICI, Borregaard,
Air Products, Landec Corporation, The
Home Depot, Hexion Specialty Chemicals,
Atofina Chemicals, Brush Engineered
Materials, Becker Industrial Coatings, RPM
International, Courtaulds, Domino Sugar,
and Chr. Hansen Laboratories.
Grace Matthews’ three main practice areas
are: sell-side transactions (private
companies, divestitures for large multinational
corporations and private equity held
businesses); buy-side projects (typically for
major multi-nationals); and financing, where
we raise debt and/or equity capital to
support private equity sponsored
management buy-outs or recapitalizations.
CONTACT INFORMATION
GRACE MATTHEWS, INC.
219 NORTH MILWAUKEE STREET
7 TH FLOOR
MILWAUKEE, WI 53202
P: 414-278-1120
F: 414-278-1119
www.gracematthews.com
info@gracematthews.com
Grace Matthews, Inc.
John Beagle Managing Director
A founder of Grace Matthews, John leads the company’s chemical
practice, providing strategic planning and direct transaction
management. John has been the lead investment banker on over
50 engagements in the chemical industry, representing major
multinational corporations, private equity firms, and privately-held
businesses. John earned a B.S. in Materials Science and
Engineering and an M.B.A., both from Cornell University.
Benjamin Scharff Director
Ben has advised clients on mergers, acquisitions, and financings
for more than 15 years. Ben’s practice areas include paints and
coatings, construction products, and other specialty chemicals.
Ben’s client base has included well-known chemical firms and
private equity groups, as well as privately-held businesses. Ben
graduated from University of Wisconsin – Madison with a degree in
Business and Economics.
Thomas C. Osborne Senior Executive, Coatings
Tom joined Grace Matthews in 2008 and focuses on new business
development and strategic planning. Previously, Tom had a
distinguished career in the global chemical industry, serving as
CEO of The Tnemec Company and ICI Paints North America/The
Glidden Company, as well as in other senior management level
positions.
Andrew Hinz Vice President
Andy joined Grace Matthews in 2007 and specializes in sell-side
transactions, buyer searches, leveraged finance, and new business
development. His transaction experience includes basic materials,
direct mail/printing, industrial equipment and financial services.
Previously, Andy was an Equity Research Analyst with Robert W.
Baird & Co. Andy holds the Chartered Financial Analyst (CFA)
designation and received a B.B.A. from the University of Wisconsin
– Eau Claire.
Kevin Yttre Vice President
Kevin joined Grace Matthews in 2008. A chemical engineer, Kevin
held a number of engineering and management positions with ICI’s
Uniqema specialty chemicals business in the U.S. and Europe
before joining Grace Matthews. Kevin holds an M.B.A. from the
Harvard Business School and a B.S. degree with Highest
Distinction, in Chemical Engineering from the University of
Wisconsin – Madison.
Trent Myers Vice President
An employee of Grace Matthews since its inception, Trent has over
20 years experience in mergers & acquisitions, leveraged finance,
and quantitative analysis. Trent has been involved in over 100
transactions involving chemicals, coatings and adhesives, and
basic materials. Trent earned a B.A. from University of Georgia, an
M.A. from the University of Virginia and an M.B.A. from the
University of Wisconsin – Madison.
Andrea Wolf Associate
Andrea joined Grace Matthews in 2005, and focuses on sell-side
engagements, buyer searches, leveraged finance, and new
business development. Andrea has completed transactions in a
number of industries including chemicals, food ingredients,
construction products, and general manufacturing. Andrea holds a
B.A. in Economics and Finance and an M.A. in Economics, both
from the University of Wisconsin – Milwaukee.
19

CHEMICALS AT THE CROSSROADS SPRING 2010
SELECT GRACE MATTHEWS CHEMICAL TRANSACTIONS
has sold its Resilient Floor
Coatings Business to
Grace Matthews, Inc. advised
LORD Corporation on this transaction
has acquired a majority interest
in
Grace Matthews, Inc. advised
Vesta on this transaction
Corporation
has been acquired by
Grace Matthews, Inc. advised
Raabe Corporation on this transaction
has sold the assets of
Lubrizol Performance
Systems to
Grace Matthews, Inc. advised
Lubrizol Corporation on this transaction
has licensed exclusive fields of
Intelimer technology from
Grace Matthews, Inc. advised
Landec Corporation on this transaction
Grace Matthews, Inc.
has acquired
Grace Matthews, Inc. advised Northwest
Coatings, LLC on this transaction
has acquired
Grace Matthews, Inc. advised
Akzo Nobel nv on this transaction
has sold its
specialty chemical subsidiary
to
Grace Matthews, Inc. advised
Landec Corporation on this transaction
Facilitator Capital
Fund
has sold the stock of
to
Grace Matthews, Inc. advised
the shareholders of CERAC, Inc. on
this transaction
has been acquired by
a subsidiary of
Grace Matthews, Inc. advised
GSI General Materials, LLC on this
transaction
merged with
Grace Matthews, Inc. advised Columbia
Paint & Coatings on this transaction
has been recapitalized by
Grace Matthews, Inc. advised
ColorMatrix Corporation on this
transaction
has acquired
Grace Matthews, Inc. advised
Minco on this transaction
has acquired the assets of
Grace Matthews, Inc. advised
Pacific Epoxy Polymers, Inc. on this
transaction
has sold its U.S. fine chemicals
subsidiary, Borregaard Synthesis,
Inc., to
Grace Matthews, Inc. advised
Borregaard on this transaction
Beckers Industrial
has acquired
Coatings
the stock of
Grace Matthews, Inc. advised Specialty
Coatings Company on this transaction
has acquired
Grace Matthews, Inc. advised
NorthStar Chemicals, Inc. on this
transaction
has acquired
The Flood
Grace Matthews, Company Inc. advised
Akzo Nobel nv on this transaction
has acquired certain assets of the
Foam Latex operations, located in
Calhoun, GA, of
Grace Matthews, Inc. advised
Bostik Findley, Inc. on this transaction
219 N. Milwaukee St.
Milwaukee, WI 53202
414.278.1120
gracematthews.com
20